Monday, May 18, 2020

Investors Search for the Good in Baidu Ahead of Q1

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What’s happening: Baidu is all set to report its first-quarter results after the closing bell on Monday, May 18.

What happened: The first quarter has been challenging for the leading Chinese search engine company. As is the case with Google, Baidu’s ad revenues have been impacted by the coronavirus outbreak and the slowing of the economy.

Moreover, Baidu has recently been the centre of some negative publicity, as the company faced accusations of not following certain censorship standards in China and its former Vice President of Finance faced embezzlement allegations. The US President Donald Trump also warned Chinese companies to comply with the country’s accounting standards to maintain their listing in the country’s exchanges.

Despite these, investors are bullish ahead of the first-quarter print and the stock gained around 4% during the regular session on Friday. There are several positives, as Baidu builds on its strengths and the trend of staying at home boosts some aspects of the company’s business.

Expectations for the quarter: Although the Beijing-based company may be gearing up to report a decline in revenues, its profit is expected to have grown in the quarter.

  • Baidu’s revenue is expected to decline by 13.9% to $3.09 billion.
  • The consensus estimate for earnings stands at 56 cents per share, representing a whopping 36.6% growth from the same quarter last year.

Why it matters: Baidu has taken measures to strengthen mobile search and leveraging AI to improve user experience, which are likely to become key catalysts for its revenue growth going ahead.

With higher focus on mobile search, daily active users (DAUs) of the Baidu App is likely to have increased significantly to hit 200 million during the first quarter. Moreover, the company’s online entertainment services iQIYI is expected to have witnessed high subscription growth, with people continuing to stay at home.

Baidu also revealed that its AI-based voice assistant, DuerOS, registered a 200% increase in monthly voice queries. The company has also taken initiatives in the autonomous driving space, which is expected to boost results going ahead.

On the other hand, Baidu faces stiff competition from Alibaba and Tencent, which are also making efforts to boost their presence.

Share price performance: Although shares of Baidu gained in regular trading on Friday, the stock has recently been under pressure. With the stock down 1% over last month, many investors consider this a good entry point into a strong company. Historically, Baidu’s shares have become highly volatile a few hours before and after the earnings release, gaining and losing more than 7%. Day traders are gearing up for the results today to identify attractive trading opportunities amid the volatility.

What to watch: Baidu needs to meet the aggressive profit expectations. Else its stock could come under pressure. Investors await comments from management about the progress of its latest initiatives and for issuing its outlook.

The Markets Today

     

Crude oil will be in focus today, after prices recorded gains for the third straight week.

Context: Oil prices closed the week on a higher note on Friday, following reports of a rebound in crude demand in China with the country beginning to ease lockdown restrictions. The rise in demand provided some support to the market that has recently been plagued with oversupply issues.

Details: There have been additional supply cuts by various OPEC (Organisation of the Petroleum Exporting Countries) countries and other key producers, while demand is improving. Data released on Friday showed a rise in daily crude oil use in China in April, with various refineries restarting operations.

The IEA (International Energy Agency) projected a decline of around 5.5 million bpd (barrels per day) in crude inventories in the second half of this year. The US Energy Information Administration also reported a decline in crude inventories for the first time in around fifteen weeks. Moreover, the OPEC+ group is looking to extend production cuts beyond June.

WTI (West Texas Intermediate) crude climbed 5.9% to $29.52 per barrel on Friday, after spiking 12.80% last week. Brent crude rose 3.7% to settle at $32.27 per barrel to record a weekly gain of 4.7%.

What to watch: Investors will be focusing on the next OPEC+ group meeting and are hopeful of the members agreeing to extend the existing production cuts. Markets will continue to assess the reopening of economies, with a decline in covid-19 cases. There are around 4,713,620 coronavirus cases globally, with 315,180 deaths.

Other Markets: US indices closed higher on Friday, with the Dow, S&P 500 and Nasdaq 100 up by 0.25%, 0.39% and 0.79%, respectively.

Support & Resistances
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Futures at 0400 (GMT)

News shaping
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What else to watch today

     

Saudi Arabia's annual inflation rate, Indonesia’s residential property price index as well as the US NAHB housing market index.